US Markets
Wednesday, May 8th, 2024 4:59 pm EDT
Key Points
- Shopify shares plummeted 19% in early trading, resulting in a nearly $20 billion decrease in market value, following the company’s issuance of revenue and profit guidance for the current quarter that unsettled investors.
- First-quarter performance surpassed consensus expectations, with adjusted earnings per share at 20 cents compared to the anticipated 17 cents and revenue reaching $1.86 billion against the expected $1.85 billion. However, Shopify’s outlook for the second quarter, anticipating revenue growth in the high-teens percentage range year over year, signaled a slowdown from recent quarters’ growth rates, despite aligning with consensus estimates.
- Shopify’s projections for the second quarter, including a decrease in gross margins by about 50 basis points and an increase in operating expenses in the low- to mid-single digits quarter over quarter, triggered concerns among analysts and investors. While the company has intensified its investments in AI features for businesses, such as “Shopify Magic,” it has retracted from certain areas like logistics services, and its long-term-focused approach aims to sustain future growth despite short-term market fluctuations.
In early trading on Wednesday, Shopify experienced a significant drop of 19%, amounting to nearly $20 billion being wiped off its market value, following the company’s provision of revenue and profit guidance for the current quarter that unsettled investors. While the first-quarter results surpassed consensus expectations, with earnings per share at 20 cents adjusted compared to the anticipated 17 cents and revenue hitting $1.86 billion against the expected $1.85 billion, concerns emerged over Shopify’s outlook for the ongoing quarter. The Canadian e-commerce giant anticipates second-quarter revenue growth to be in the high-teens percentage range year over year, aligning with consensus estimates but marking a deceleration from the growth rates of the past six quarters, which were in the low-to-mid 20s. On a conference call with analysts, Shopify attributed this forecast to factors such as foreign exchange headwinds due to the robust U.S. dollar and a decline in European consumer spending. Additionally, the sale of Shopify’s logistics business to Flexport last May is expected to cause a decrease in gross margins by approximately 50 basis points in the second quarter, while operating expenses are projected to rise in the low- to mid-single digits, contrary to Wall Street’s forecast of flat growth. Baird analysts noted that the elevated operating expense guidance overshadowed an otherwise solid first-quarter report, speculating that increased expenses may be linked to investments in marketing and research and development, particularly in AI. Shopify has been enhancing its AI features for businesses, including “Shopify Magic,” but without apparent positive impacts on gross merchandise volume and revenues from these investments, investor concerns about margin trajectory may prompt a stock rerating. Despite pulling back in areas like logistics services, Shopify remains committed to long-term investments, as emphasized by President Harley Finkelstein, who stated that the company’s strategic focus is on future growth. Despite reporting a net loss of $273 million for the quarter, Shopify observed a 23% increase in gross merchandise volume, reaching $60.9 billion, exceeding consensus expectations.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/05/08/shopify-shares-plunge-18percent-on-weak-guidance.html
